UPDATE 1-One overnight repo rate measure rises as year-end approaches

Adds analyst comment in paragraph 7, details

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 30 (Reuters) - One measure of the U.S. overnight repurchase rate rose on Monday due in part to funding tightness associated with year-end liquidity activities by financial institutions.

The overnight repo rate measures the cost of borrowing short-term cash using Treasuries or other debt securities as collateral.

On Monday, the repo rate rose to 4.85% USONRP=, according to LSEG data, compared with 4.6% on Friday. Monday's repo rate matched the level last seen on Nov. 21.

The secured overnight financing rate, the cost of borrowing short-term cash, was at 4.46% as of Friday. The updated rates for Monday will be available on Tuesday.

Other repo rates, however, showed more benign levels on Monday, analysts said. For instance, the tri-party general collateral rate was at 4.35%-4.45%. The GC rate refers to the level or figure corresponding to a basket of securities that trade normally. GC securities can be substituted for one another without changing the repo rate.

The GC rate indicated for Tuesday, the final day of 2024, is at 4.70%, according to Jan Nevruzi, interest-rates strategist, at TD Securities. That would be 25-30 basis points higher than the rate seen on Monday.

"The worst looks like it's behind us," said Nevruzi. "What happened on (Thursday) caught a lot of people off guard. But I presume it had something to do with large banks cleaning up their balance sheets and not leaving it to the last moment."

Primary dealers, typically large banking institutions, sit between borrowers and lenders in repo markets. A typical repo transaction involves a dealer borrowing cash from a money market fund on a tri-party platform, typically a third-party agent such as a custodian bank, and lending that cash to a client such as a hedge fund.

Most banks generally pull back from intermediating around quarter- and year-ends due to higher balance-sheet costs on these reporting dates. That typically leads to a mad dash to fill a large hole left by those dealers, resulting in a jump in repo rates.

Nevruzi thinks that balance-sheet activities by banks caused a number of repo rates to spike on Thursday. SOFR rose to 4.53% on Thursday, from 4.40% on Tuesday, while the broad GC rate climbed to 4.50% on Thursday, from 4.39% on Tuesday.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese and Rod Nickel)

((gertrude.chavez@thomsonreuters.com; 646-301-4124))